Note the use of the word “play” in the title and the lack of the word “recommendation.” I recently wrote about the fact that natural gas has showed a historical tendency to advance over the three days encompassed by June trading days number 9, 10 and 11. This is clearly a speculative idea and granted, one that the majority of traders are not inclined to jump on.
But for illustrative purposes, when it comes to playing purely speculative ideas there are usually a variety of ways to play. To wit, a trader could make one of the following trades at the close:
- Enter a long position at the close in natural gas futures and hold for three days;
- Buy 100 shares of ETF (ARCA:UNG), trading at $14 as I write, or $1,400.
- Buy 1 June UNG 13 strike price call (as I write, trading at $1.02 bid/$1.10 ask – i.e, if bought at the market would cost $110).
So if things were unchanged by the close of trading, a trader could enter a call option position for a total cost (and risk) of $110 by buying the June UNG call option.
Summary
The purpose here is not to prompt you to enter a trade in natural gas. I basically just want to follow through with keeping up to date on an idea I wrote about a little while ago and to alert you to the fact that there are “low risk” ways to let the “wild-eyed speculator” in you out of its cage once in a while – in this case, via a cheap, in-the-money call option.